- Focused business model proves its worth
- Commission income rose from EUR 193 m to EUR 196 m
- Currency management as a growth area
“Our focused business model with four core segments – Asset Management, Capital Markets, Corporate Finance and Private Banking – has proven its worth and Metzler is able to report a successful financial year,” said Emmerich Müller, personally liable partner, at the Frankfurt-based private bank’s annual press conference in Frankfurt/Main, Germany. He is also moderately positive about the remainder of the year, despite the negative effects of the fourth quarter of 2018 and the global political risks. Müller said that the entire financial sector is affected by high regulatory expenses and individual banks are increasingly focusing on their strengths. In view of this development and the associated opportunities, Metzler is examining how it could further sharpen its focus on its core competencies. This includes relinquishing the remaining retail business in the Asset Management segment.
As always, the bank is paying a dividend of just EUR 2.3 m to its shareholders. Commission income increased from EUR 193 m to EUR 196 m and was therefore slightly above expectations, despite the market-related drop in the volume of assets under management. Net interest income was a good EUR 5 m in the reporting period, which was below the previous year's level of EUR 8 m, as expected. However, this plays a relatively insignificant role in Metzler’s business strategy. General administrative expenses, which include depreciation of property, plant and equipment, were EUR 187 m, about 2% above the previous year’s level of EUR 183 m. Expenses to meet regulatory requirements, the rising cost of market and index data and the procurement of external research played a considerable part in this. The average headcount in the reporting period was around 850.
The Group’s balance sheet total was EUR 3.9 m, only slightly lower than in the previous year. However, given Metzler’s business model, this is not a very meaningful indicator. Reported equity was EUR 202 m, around the prior-year level of EUR 201 m. The regulatory equity of the bank and the Metzler financial holding group remains well above the minimum requirements at EUR 243 m and is comprised entirely of tier one core capital. With a core capital ratio of over 20%, Metzler believes it is still in a good position to meet present and future regulatory requirements. As has been customary at Metzler for many years, in 2018 the bank made further allocations to reserves established under
§ 340f of the German Commercial Code (HGB). The bank will continue to refrain from including the reserves established under § 340f of the German Commercial Code (HGB) and further hidden reserves in its regulatory capital base. Thanks to its business model, Metzler’s liquidity position was very comfortable at all times. The Metzler financial holding group’s liquidity coverage ratio (LCR) was 194% as of December 31, 2018.
In the Asset Management segment, total assets declined from EUR 76 bn to EUR 74 bn. This was due mainly to the negative development of the capital markets, especially the equity markets. However, a net inflow of funds of around EUR 1 bn slightly balanced out this effect. By the end of the first quarter of 2019, total assets had increased to EUR 79 bn again. As expected, our capital preservation strategies performed best on the capital markets in 2018, which was a very turbulent year. According to Müller, a comparison with competitors shows that Metzler’s funds were among the leaders in all categories. With these strategies, Metzler meets the rising need of many institutional investors to participate in positive capital market movements as far as possible while clearly limiting risk. In the equities area, Metzler has stuck to its active, fundamental approach despite the trend to passive investment and ETFs. In all equity and corporate bond products, the asset managers continued and stepped up the integration of non-financial indicators into company analyses (ESG integration), which started some years ago. In April 2018, the pension management activities were bundled in a separate company, Metzler Pension Management GmbH. The Metzler pension fund is a very flexible funding vehicle to carve out and transfer pension obligations. In addition, Metzler Pension Management offers trust solutions (CTAs) to provide insurance against insolvency and create pension assets. Müller pointed out that through Metzler Trust e. V., Metzler Pension Management is one of Germany’s leading providers of trust solutions for companies.
The MiFID II regulatory requirements have not exactly facilitated Metzler’s conventional equity brokerage business for clients in Germany and abroad and heavy pressure on margins made its mark. Despite pleasing success in acquiring new clients, commission income from the conventional cash equities business declined. Earnings were therefore lower than in the previous year. Despite the more difficult conditions, Metzler Capital Markets is able to report some positive factors: in particular, clients valued the research provided by the in-house team of analysts, which has been awarded many accolades. That is also reflected in the numerous research contracts concluded in accordance with the MiFID II regulations, which came into force in 2018.
Moreover, the new Equity Capital Markets division established in 2017 again provided successful support for a number of transactions in the reporting period. In this segment, Metzler provides advice and support for issuers in capital increases and share buybacks, assists in increasing and reducing strategic equity holdings, and executes placements.
Müller pointed out that the persistently low interest rates in the euro zone remain challenging for fixed income operations. Nevertheless, the bank managed to report a result that was only slightly below the previous year’s very good level. Business with newly acquired institutional clients in German-speaking countries was especially pleasing. Metzler’s foreign exchange business once again benefited from stable, long-standing client relationships, which were extended in the reporting period. Currency management did particularly well and there was another considerable rise in the FX volume under management to EUR 2.8 bn (2017: EUR 2.1 bn). The volume is currently EUR 5.5 bn. Rising interest in systematic currency management is due to the massive increase in hedging costs in US dollars relative to the euro in recent years.
Müller reported that the Corporate Finance segment developed well in 2018. Metzler acquired important mandates in the core areas of industry, technology, automotive suppliers, financial services, alternative energy and retail and advised its clients on an increased number of M&A transactions in 2018. The segment acted on behalf of German and international corporations, family businesses and financial investors. The international bidding processes designed and managed by Metzler continued to enjoy very high demand from strategic purchasers and financial investors. Metzler’s acquisition mandates included supporting investors from Asia in purchasing minority shareholdings in German companies. Furthermore, business activities included advising family shareholders at companies in complex situations and private equity investors on buy-outs. All this contributed to a significant improvement in results compared with the previous year.
The Private Banking segment is dedicated to portfolio management and to structuring and controlling substantial assets for entrepreneurs, entrepreneurial families, foundations and private individuals. Metzler’s independence in private banking is shown by the fact that we refrain from product placements in order to concentrate entirely on clients’ interests. Metzler therefore specifically concentrates on the asset classes equities, bonds and liquidity. Long-term preservation of assets and appropriate handling of the elementary risks involved in the investment of assets always have priority.
Müller specifically stressed that Metzler focuses on equities, which proved a demanding task in last year’s very challenging capital market environment. However, long-standing clients are familiar with the ups and downs of the capital markets and – over a period of many years – have been rewarded for withstanding the volatility associated with the equity investments. Despite the significant declines on most equity markets, the volume of assets under management in the reporting period only declined slightly as a result of a pleasing inflow of funds.